Grains Of Hope For A Budding Sector

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Wednesday, January 23, 2019 09:38 AM / FBNQuest Research  

                                                                                     

Nigeria’s agriculture sector remains a favoured route to economic diversification. The sector has benefited from the FGN’s import substitution strategy and related incentives. Over the past three years, there has been a visible decline in the recorded import bill for specific food items such as rice and fish. 

However, agricultural GDP growth has not accelerated at the desired pace. Over the past eight quarters, the sector has grown by an average of 3.0% y/y. In Q3 2018, however, it expanded by 1.9% y/y. Output losses due to poor storage, logistics issues and insecurity in the Middle Belt are major reasons for the slow pace of growth.                                                                                                                  

The rice segment has recorded some successes. We learnt from a recent briefing held in Lagos that the official import bill for rice has been trimmed to as low as US$150m per annum from US$1.8bn, which was the level before the CBN’s fx access ban on 41 items in 2015. 

As for interventions, the CBN’s anchor borrowers’ programme has been instrumental in boosting agricultural output, especially rice. As at end-November 2018, over 400,000 rice farmers had benefitted from the N160bn funding disbursed under the programme. 

The fisheries segment has experienced a ramp-up in domestic production due to increased government intervention. However, commercial fish farming is not very developed. It accounted for only 7% of total fish produced in 2017. On a brighter note, there has been a boost to locally produced fish feeds: this should assist with profit maximisation as imported feeds account for c.75% of total production costs, resulting in historically low aquaculture yields. 

 

Agricultural GDP growth (% chg; y/y) 

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Sources: National Bureau of Statistics (NBS); FBNQuest Capital Research

 

There has also been some traction in local tomato farming. Katsina State has recorded a boost to local tomato production within the state, primarily due to recent dredging of irrigation dams. Although laudable, the impact is minimal across the country. 

The FGN is committed to transforming the sector into the economy’s new backbone. However, to achieve economic diversification, agro-processing is essential to boost export earnings via both raw agricultural output and semi-finished products.

 

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